Question

X and Y are partners in a firm. X is entitled to a salary of ₹ 10,000 per month and commission of 10% of the net profit after partners' salaries but before charging commission. Y is entitled to a salary of ₹ 25,000 p.a. and commission of 10% of the net profit after chaging all commission and partners' salaries. Net profit before providing for partners' salaries and commission for the year ended 31st March, 2018 was ₹ 4,20,000, show distribution of profit.

Answer 1

Profit and Loss Appropriation Account for the year ended March 31, 2018
Dr.					Cr.
Particulars				Amount Rs	Particulars	Amount Rs
Partners’ Salary:					Profit and Loss A/c (Net Profit)	4,20,000
X (10,000 × 12)		1,20,000
Y		25,000		1,45,000
Partners’ Commission:
X			27,500
Y			22,500	50,000
Profit transferred to:
X’s Capital A/c	1,12,500
Y’s Capital A/c	1,12,500			2,25,000
				4,20,000		4,20,000

Working Notes:

WN 1 Calculation of Commission

Commission to X = 10% of Net Profit after partners’ salaries but before charging such commission

Profit after Partners’ Salaries = 4,20,000 − 1,45,000 = Rs 2,75,000

Commission to Y = 10% of Net Profit after charging Commission and Partners’ Salaries

Profit after commission and partners’ salaries = 4,20,000 − 1,45,000 − 27,500 = Rs 2,47,500

WN 2 Calculation of Profit Share of each Partner

Profit available for distribution = 4,20,000 − 1,45,000 − 50,000 = Rs 2,25,000

Profit sharing ratio = 1 : 1